Why Did My Stock Just Die?

Your stock just took a nosedive -- but don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit:

Stock

CAPS Rating (out of 5)

Yesterday's Change

Advanced Battery Technologies (Nasdaq: ABAT  ) ** (42.7%)
KV Pharmaceutical (NYSE: KV-A  ) * (20.5%)
Universal Travel (NYSE: UTA  ) **** (19.7%)

Over the past two days, the stock market has put together back-to-back days of moving higher that pushed the index up 150 points, or more than 1.1%, despite lingering worries about Japan's nuclear meltdown and a still-muddled purpose in Libya. So stocks that went in the other direction by even larger percentages are pretty big deals.

The devil's in the details
Here we go again, another Chinese small-cap reverse takeover stock getting blasted as a scam. The shocker is that this time it's Advanced Battery Technologies, an otherwise profitable company that seemed to be growing based on demand for large-capacity batteries and electric scooters.

Maybe that was actually the warning sign. Considering similarly situated A123 Systems (Nasdaq: AONE  ) , Ener1 (Nasdaq: HEV  ) , and Valence Technology (Nasdaq: VLNC  ) haven't been able to achieve this milestone, Advanced Battery's ability to exceed the prowess of its rivals should have given us a heads-up there was something amiss. It was actually key to one of the charges against it: It produces an admittedly commoditized product (polymer lithium-ion batteries) using expensive materials, yet it's able to produce profit margins far and away higher than any other company in the space. And doing so producing scooters!

An even earlier sign might have been raised back in December when Advanced Battery decided to sell $30 million worth of stock at below the market price and attached warrants, despite not needing the money. It wouldn't have been the first time a company has diluted shareholders when its stock was riding high, but in retrospect maybe we should have been more curious about why it was raising cash.

If the allegations prove true, it would be another egregious breach of trust for investors. As CAPS member HollowMountain had noted, for a review of its financials, it appeared to be the industry's "most stable battery producer." Yet as BuffettJunior1 said, it's looking like just one more example of why investors need to use an excess of caution when it comes to committing cash to a Chinese company.

What a surprise! Another Chinese company in trouble for accounting fraud. I always warn people about investing in China. If a Chinese company looks too good to be true stay away from it!!! The overall business look shady as well, should have picked this to under-perform a long time ago.

Let us know on the Advanced Battery Technologies CAPS page if it will be another example of a stock fraud finally found out.

Similarly, Chinese online travel agent Universal Travel is no stranger to accusations of sham operations either. Its financial statements have been called into question before, and its website has been cited for being useless at best. How travelers might be able to actually make reservations was enough to cause CAPS member goldminingXpert to ding it: "Because non-functional travel websites make for poor investments!"

Yet word that it was delaying filing its annual financial report -- not because of accounting irregularities, it says -- was enough to push the travel site's stock down again. Add it to the Fool's free portfolio tracker if you'd like to book it for further consideration.

Cracks in the foundation
KV Pharmaceuticals' precipitous drop is from the realization that it may have tried to grasp too much. Sure, drug developers should be able to recoup the costs they've invested in the drugs they produce, but many felt KV used the imprimatur the Food and Drug Administration bestowed on it as a license to steal from babies. And that wins you no PR beauty contests.

Makena is used to prevent preterm births. Available drug combinations previously prescribed by doctors went for $10 to $15 a dose, but KV priced its drug at $1,500. The firestorm of indignation was immediate, but also attracted some very powerful enemies. U.S. senators weighed in condemning the company, and whether they brought their will to bear on the situation, the FDA clarified that it would not prevent doctors from continuing to prescribe the drug combos they previously did. And with that, the value of KV's Makena evaporated along with the company's stock.

No doubt Hologic (Nasdaq: HOLX  ) is laughing up its sleeve. While it developed Makena as part of an agreement between the two companies, it transferred rights to KV after the drug received FDA approval. Where KV's stock is down 34% over the past month, Hologic's shares are 17% higher.

Like CAPS member peterod, CAPS member Danyboy7 thinks the sell-off is just overdone at this point since the biopharma is not a charity.

Set it's self up well to recoup losses and earn some cash, no matter what you think about it morally. It's a company, not a doctor's (threapy) office

Add KV Pharmaceuticals to your watchlist to see if it can recover from this disaster of its own making.

Ready for a resurrection
Just because your stock has taken a beating doesn't mean it's going to roll over and die. Markets are known for overreacting. A closer look on Motley Fool CAPS at what's happened to your stock can give you an edge over other investors who just react to the market's lead. You can decide for yourself whether it's ready to come back from the dead.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in the article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2011, at 11:15 AM, RRobertsmith wrote:

    a postmortem bear rant...I love it!

    http://www.youtube.com/watch?v=Z0GFRcFm-aY

  • Report this Comment On March 31, 2011, at 12:42 PM, houston39 wrote:

    ABAT is a SCAM!! Check out the article on Seeking Alpha, they back up what they say.

  • Report this Comment On March 31, 2011, at 1:22 PM, tarbouka wrote:

    Here's a stock that took a beating many, many months ago. Any new word on FUQI?

    This Chinese jeweler hasn't issued any quarterly/yearly reports since Sept 2009.

    Sure is difficult to evaluate the company performance without any numbers! Aurrrgghh!!!!

  • Report this Comment On March 31, 2011, at 6:11 PM, jcordes99 wrote:

    This was merely a repitition of the Variant piece. It still looks like a short pump slam. Too many accusations: Product isn't real, no distribution channels, willful mischaracterization of the product and business. The many criticisms about corportate structure would have been adequate to raise doubts but Variant found it necessary to attack every nook and cranny of the business without offering any varifiable data, just suspicions while shorting the daylights of the stock prior to publication. This is not a research piece for the benefit of investors, it's clearly a hit piece intended for the benefit of the author and his crony's. Variant did not contact the company for answers or explanation of corporate structure or revealment of distributors or clients. That's because they did not want answers.

  • Report this Comment On August 02, 2012, at 4:23 PM, BigLoser64 wrote:

    Late to discussion here. Anyone still doing homework on ABAT? I'm feeling caught in the information vacuum. One side strongly feels that ABAT is a scam, the other side strongly feels that the attacks were without hard data or merit. After being in ABAT for over a year, all I have to say is that regardless of whether the attacks were with or without merit, ABAT has done effectively nothing to convince the world that it isn't a scam. They let themselves be delisted from NASDAQ without any kind of a defense--just rolled over and played dead. It only lost 90% of its value. Could be BK. Is there any hope for ABAT?

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